Abolish development agencies; spur development

The California Supreme Court has given the state permission to stop funding “redevelopment” agencies in the state _ a move that might actually speed up efforts to pump new life into blighted neighborhoods. Other states should follow suit.

Redevelopment agencies typically are government or quasi-government municipal agencies that acquire property, provide infrastructure, and subsidize private investment in so-called blighted areas, in an effort to promote urban renewal.

The California Supreme Court decision, in December, in a case known as California Redevelopment Association v. Ana Matasantos _ the latter being California’s director of finance _ permitted the state to proceed with its plans to defund the more than 400 redevelopment agencies in the state. The state’s action was driven not by opposition to the agencies, but by budget considerations: the potential to cut $1.7 billion from the state’s projected $13 billion budget deficit.

But there’s an even better reason to stop funding such agencies: the fact that they often run roughshod over private property rights and just as often do more harm than good, destroying struggling, but livable neighborhoods, in the guise of saving them.

They do this typically by invoking the government’s power of “eminent domain” to acquire property.

If public officials believe a privately owned home, apartment building, parking lot, business or any other property would have more value being used for another purpose, they should persuade the owner to sell it at a mutually agreeable price. When they can’t do so, eminent domain allows them to force a sale for “just compensation,” even if the owner doesn’t want to sell at the price that’s offered.

In some cases, the owner doesn’t want to sell at any price. The reason: What a city planner might call blighted, someone else often calls home.

There’s another problem with government redevelopment efforts as well: The promised redevelopment often doesn’t materialize.

Consider the notorious 2005 Kelo case. The case, upheld by the U.S. Supreme Court, involved the taking of Susan Kelo’s home in New London, Conn., for the purpose of promoting private development. The City of New London said its redevelopment plan would generate more than 3,000 jobs and more than $1 million per year in new tax revenues.

Nearly seven years later, there’s still no development in the area and the empty lot where Kelo’s bulldozed house once stood is now being used by the city as a dump for storm debris.

There’s another reason to applaud the California decision. And that is: because government bureaucrats often make terrible business decisions.

The California Redevelopment Association argued that the redevelopment agencies need to be kept afloat because “the private sector is reluctant to invest in such areas because the risk and costs associated with doing so outweigh the benefits.”

Exactly. Redevelopment agencies are using taxpayers’ money to subsidize somebody else’s risk-taking. As California State Assemblyman Chris Norby, who represents the city of Fullerton, put it, “Redevelopment has become a cash cow for developers, NFL team owners and big box stores who have been on the public dole for a long, long time.”

The Non-Profit Housing Association of Northern California, another major recipient of redevelopment funds, argued that the funds provided the lifeblood “for affordable homes and rental housing” and that “the loss of this funding will mean thousands more Californians living on the streets.”

But there are better ways to promote affordable housing. In fact, government policies _ including zoning restrictions, certain building codes, labor laws, permit moratoria, urban growth boundaries, and even so-called “inclusionary zoning” _ are among the main reasons there is less, rather than more affordable housing.

Abolishing these policies would do more to increase the supply of affordable housing than anything the development agencies have done. Cities such as Houston have grown and developed rapidly with comparatively little government interference and no zoning laws, while remaining affordable.

The decision to eliminate California’s redevelopment agencies will help reduce the state’s budget deficit. It will also help eliminate one of the biggest impediments to economic development: agencies that suck up tax funds without ever solving the problem they were created to solve.

Other states should follow California’s lead.

• Powell is an associate professor of economics at Suffolk University in Boston, a senior fellow with the Independent Institute, 100 Swan Way, Oakland, Calif. 94621, and co-editor of “Housing America: Building Out of a Crisis.”